Intel’s crazy week leaves Wall Street uncertain about the chipmaker’s future | Real Time Headlines

It’s been quite a week Intel.

The chipmaker has lost more than half its value this year and last month worst day After a disappointing earnings report, Monday kicked off a 50-year run in the market. declare The company is separating its manufacturing arm from its core business of designing and selling computer processors.

On Friday night, CNBC confirmed Qualcomm have Recently contacted Intel’s acquisition will be one of the largest technology deals ever. It’s unclear whether Intel has been in talks with Qualcomm, and representatives from both companies declined to comment. The Wall Street Journal first reported the story.

The stock gained 11% this week, its best performance since November.

The rally has come as no relief to Chief Executive Pat Gelsinger, who has struggled since taking the helm in 2021. chip manufacturer and suffered a heavy setback in the field of artificial intelligence chips. NVIDIAcurrently valued at nearly $3 trillion, is more than 30 times Intel’s market value of just over $90 billion. Intel said in August that it would cut 15,000 jobs, accounting for more than 15% of its workforce.

But Gelsinger is still calling the shots, saying Intel is moving forward as an independent company and has no plans to spin off foundries. in a memorandum He told employees on Monday that while the company was creating a separate internal unit for the foundry, with its own board and governance structure and the potential to raise external capital, the two parts “would be better together.”

The road to recovery isn’t getting any smoother for the company that makes chips in Silicon Valley. By moving forward as a company, Intel must simultaneously clear two huge obstacles: Over $100 billion Build chip factories in four different states by 2029 while gaining a foothold in the artificial intelligence boom that will define the future of technology.

Intel expects to spend about $25 billion this year and $21.5 billion next year on its foundries, hoping that becoming a domestic manufacturer will convince U.S. chipmakers to move their production home rather than relying on Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung.

That prospect will be more palatable to Wall Street if Intel’s core business is in a leading position. Although Intel still makes most of the processors that power PCs, laptops and servers, it is losing market share to rivals. AMD and reported revenue declines threatening its cash flow.

The new governance structure for the foundry business announced on Monday is an opening salvo to reassure investors that major changes are underway as the company prepares to launch a manufacturing process called 18A next year. Intel says it has seven products in development and has already won a major customer, announcing Amazon It will use its foundries to produce network chips.

“We’re entering the next phase of our foundry journey, which is very important,” Gelsinger told CNBC’s Jon Fortt. “As we move into the next phase, it’s more about being more efficient and Ensuring we deliver good shareholder returns on these significant investments.”

Still, it will take years for Gelsinger’s foundry bet to pay off. Intel said in the memo that it does not expect meaningful sales from external customers until 2027. Malaysian factory.

British Semiconductor It is a giant in the chip manufacturing industry, manufacturing for companies such as Nvidia, Apple and Qualcomm. Its technology enables fabless companies (those that outsource manufacturing) to make chips that are more powerful and more efficient than what Intel’s factories can currently churn out. Even some of Intel’s high-end PC processors use TSMC.

Intel has yet to announce key traditional U.S. semiconductor customers for its foundries, but Gelsinger said to stay tuned.

“Because of the fierce competition, some customers don’t want to give their names,” Kissinger told Ford. “But we’ve seen a significant increase in the amount of customer pathway activity we’re doing.”

Before Amazon’s announcement, Microsoft explain Earlier this year, it announced it would use Intel foundries to produce custom chips for its cloud services, a deal that could be worth $15 billion to Intel. Microsoft CEO Satya Nadella In February it said it would use Intel to produce its chips, but did not provide details. Intel also signed a contract with MediaTek, which mainly produces low-end chips for mobile phones.

Intel said this week it received $3 billion to make chips for military and intelligence agencies in a specialized facility called a “secure enclave.” The plan is confidential, so Intel has not revealed specific details. Kissinger also recently met with Secretary of Commerce Gina RaimondoIntel’s future role in chip production is being loudly touted.

Earlier this year, Intel Grant The Biden administration will provide up to $8.5 billion in CHIPS Act funding and will have access to an additional $11 billion in loans from the bill, which is passed in 2022.

“Ultimately, I think what policymakers want is for the U.S. semiconductor industry to thrive,” said Anthony Rapa, a partner at Blank Rome, a law firm that focuses on international trade.

Currently, Intel’s largest foundry customer is itself. The company began reporting the unit’s financials this year. In its latest quarter ended in June, the company had an operating loss of $2.8 billion on revenue of $4.3 billion. Only $77 million of revenue came from external customers.

Intel’s goal is to achieve $15 billion in external foundry revenue by 2030.

While this week’s announcement is viewed by some analysts as a first step toward a sale or spinoff, Gelsinger said the move is designed in part to help win over new customers who may be concerned about their intellectual property leaking from foundries to Intel’s other businesses.

“Intel believes this will provide a clearer distinction between external foundry customers/suppliers,” JPMorgan analysts wrote in a note. JPMorgan analysts have a sell rating on the stock. “We believe this could ultimately lead to a spin-off of the business in the coming years.”

Whatever happens there, Intel will have to find a solution for its main business of core PC chips and Xeon server chips.

Intel’s client computing unit, the PC Chip Division, reported that its revenue was down about 25% from its peak in 2020 compared with last year. The data center segment declined 40% during this period. In 2023, server chip production will decrease by 37%, while the cost of producing server products will increase.

Intel has added bits of artificial intelligence to its processors as part of a drive to boost sales of new PCs. But it still lacks a strong AI chip competitor that can compete with Nvidia’s GPUs, which dominate the data center market. Futurum Group’s Daniel Newman estimates that Intel’s Gaudi 3 AI accelerator only contributed about $500 million in sales to the company last year, compared with Nvidia’s $47.5 billion in data center sales in its latest fiscal year.

Newman is asking the same question as many Intel investors about where the company will go from here.

“If you separate those two things, you think, ‘Well, what are they best at? Do they have the best process? Do they have the best design?'” he said. “I think part of what makes them strong is that they’ve done it all.”

—CNBC’s Rohan Goswami contributed to this report

watch: CNBC’s full interview with Intel CEO Pat Gelsinger